Authors: Vincent Duchaine and Jennifer Kwiatkowski
Refresh rate: daily
Proprietary Wealth Umbrella Trading View Indicator name:
1. ☂️ WU BTC Exchanges Money Flow Bottom Indicator
Digital currency exchanges are the crypto equivalent of your stock broker. It is where you can buy, sell or hold a digital asset. But just because you bought some bitcoin on a given exchange doesn’t mean you have to hold it on that exchange. In fact, there have been many issues with exchanges in the past such as Mt. Gox that had their Bitcoin stolen in 2014, or Quadriga in 2017 that was using people's bitcoins to buy mansion, cars, and yachts. These stories are still fresh in people’s minds, so a lot of them prefer to store their bitcoins themselves in a cold storage wallet when they are not planning to sell them. (Hey! We wrote that blog article before the FTX fiasco, so these stories about exchanges are even more in our memory now.)
The amount of bitcoin on exchanges is a huge indicator of the market liquidity. Or, to put it simply, if everyone held their coins in a cold storage wallet, we would be at a much lower risk of seeing a sudden panic selling since no one would be one click or one stop loss away from selling their asset.
Throughout our analysis of all the possible on-chain metrics, we discovered that looking at the inflow/outflow on exchanges gives a huge bottom signal. This one needed a bit of processing to account for many factor like growing supply, lost supply, institutional holders, but the next graph shows the result of this indicator from end of 2014 until now.
Note how this indicator will only rise on major drops, including the covid crash. It is particularly interesting here since the covid crash doesn't always appear as a significant move for many indicators, but reaches the maximum value ever recorded on this one. The indicator does not flag anything for the first Bitcoin bear bottom of 2011, however, exchanges didn’t play a major role back then, so this discrepancy is not particularly relevant.